Heavy Truck Orders Plunge, Worst September since 2009

Transportation Recession exacts its pound of flesh.

Orders for Class 8 trucks – the rigs crisscrossing the US highway system that keep the nation supplied – plunged 27% in September to 13,791, according to FTR Transportation Intelligence. It was the worst September since 2009.

The year 2014 had been great. Nearly 300,000 Class 8 trucks were built. 2015 started out even stronger, and the industry anticipated – in what has become a series of false hopes inspired by QE-nurtured optimism about capital expenditures – that 327,000 heavy trucks would be ordered, which would have been a record.

But then the trucking industry began to sputter as the goods producing economy was swooning, and soon trucking companies, beset by overcapacity, began to curtail their purchases from heavy-truck dealers, and dealers with inventories piling up, began to cut orders to manufacturers. As 2015 wore on, orders continued to fall. Despite the strong beginning, orders ended the year down 5.3% from 2014, to 284,000 trucks.

This year has turned out to be outright ugly. So far, manufacturers have received only 130,305 orders, according to FTR, a 39% collapse from the same period in 2015. This chart shows orders for Class 8 trucks in 2015 and 2016 through September:

“Fleets are cautious due to an uncertain economy and slow freight growth,” explained Don Ake, vice president of commercial vehicles at FTR. “Class 8 inventories also remain high and this also restrains new orders.”

But as in 2014 and in 2015, hopes rule the day.

“Large fleets are expected to begin ordering replacement units for 2017,” Ake said. “If the economy does improve and the trucking outlook brightens, then medium-sized fleets and others should feel confident enough to order also in coming months.”

Struggling with plunging orders and under pressure to cut costs, truck manufacturers have been laying off people all year. Volvo Trucks North America has gone through two rounds of layoffs this year, 500 folks in February and another 300 in July.

“[W]e operate in a cyclical market, and we have to adapt to market demand,” spokesman John Mies wrote in an email in July to The Roanoke Times, Roanoke, VA, not far from Pulaski County, where the Volvo plant is located. Layoffs always hit surrounding communities the hardest.

Freightliner, a unit of Daimler Trucks North America, announced nearly 1,000 layoffs in January and another 1,250 layoffs in February, blaming “a sustained reduction in orders.” Then in June, it added another round of layoffs, this time 800 workers.

Navistar cut 10% of its workforce, or 1,400 people, in late 2015. Paccar, which produces Kenworth and Peterbilt trucks, also announced layoffs at some of its plants, along with suppliers of truck manufacturers, including diesel engine maker Cummins.

Heavy trucks play a crucial role in the US economy. In 2015, they transported 64.3% by value of total freight, with the other modes being rail, pipeline, air, and vessel. The trucking business, even more so than railroads, is an important thermometer for the goods producing economy. And that’s where part of the problem lies.

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Wolf, I really enjoy reading your articles, specially when it is about freight, auto-sales and retail, as they are clear indicators of how our economy is doing. Thanks for bringing real news to us. What are your thoughts on the looming crisis of derivatives that banks are stuffed with?

When the banks were again allowed to open, no safe deposit box could be opened, without a government inspector present.

In Cyprus, boxes could not be accessed until after the official banking holiday ended. I am not aware that a state inspector had to be present ,when the box was opened, after the holiday in Cyprus..

The contents of safe deposit box, controlled by a bank, is only yours, if the bank and state, decide to allow it to be.

If a bank has to be liquidated, the liquidators can become involved in the ownership of the box contents in some State/Country’s.

If you are using boxes, you are better off with a box controlled by a box company, in the current state and banking environment. Simply as you may have a little more time to access, it before they are frozen, by the state, during a Crisis event.

When you deposit cash in a bank, you become an unsecured creditor of the bank, not much difference with the box contents.

I known there is FDIC in the US and it has saved people in the past. Not all country’s have FDIC, and in a big crisis, there is still the question would FDIC be able to cope, or the State be willing to fund it to enable it to cope.

You have a box, so you are obviously trying to eliminate the reliance on what would and should be there in your possession, under your control.

By replacing it with what “will” be there in your possession under your control.

I would suggest a bank box is not the place to do that..

Meme Imfurst

Oct 5, 2016 at 7:16 am

“Just in Time” inventory depended on ‘just in time’ trucking. Everyone forgot about the consumer having extra money….’just in time’. TILT.

The only charts I look at that have an up trend lines
are debt, health insurance premiums, and propaganda.

Dan Romig

Oct 5, 2016 at 7:38 am

A new fuel efficient sleeper will cost about $125,000, and deliver about 9 mpg vs about 6 mpg for an older rig. Right now, diesel is about $2.40 a gallon (depending on where one is in the USA).

Fuel cost per 100,000 miles on an older rig = $40,000. On a new one, it would be $26,700. Doing the math roughly, it would take a million miles at today’s fuel cost to balance out the investment in a new rig.

I would assume that those who’re running the trucking companies have this, plus maintenance, depreciation, insurance etc worked out to the nickel when deciding on upgrading their fleet. But, the slowdown in new truck orders certainly is a reflection of the economy in the States.

Winston

Oct 5, 2016 at 9:00 am

Great points. This graph from Wolf reinforces the slowing economy explanation of the reduction in heavy truck orders:

I assume you mean Wolfstreet.com, and not the increasingly scary US of A, correct?

FluffyGato

Oct 5, 2016 at 7:14 pm

Nice analysis.

And the trucking companies have it worked out to the tenth of a penny. Independent operators to the hundredth.

d

Oct 6, 2016 at 12:51 am

1 M miles is basically the Economic working lifespan on the bigger units.
When transport slows down, the time taken to accrue that 1M miles, increases pushing out the order dates.

As just like rail engines, the bigger units can sustain being parked idle for longer periods if they are cared for.

Even in America, look around any store, and try to find, what didn’t come, at least part of the way there, on a truck.

The simplest national and regional economic indicator out there, is hiring requirements and adverts, for truck operators, from the lower grade of operators.

The choosier, the lower grade operator is, the worse the economy is, and probably will get, as when the economy is good. lower grade operators, cant get good drivers, and will take what they can get their hands on.

Petunia

Oct 5, 2016 at 7:54 am

Wolf,

During the Louisiana flood 40K homes were affected and I am assuming 40K+ cars as well. I remember the tv coverage showing entire dealerships underwater. What happens to all those cars and trucks? Are they cleaned up and resold, how, where? I had never given it much thought, but with the upcoming hurricane due to hit Florida you can expect vehicle damage there too. Are these disasters good for the car business or not?

When new cars are flooded on dealer lots, they may be totaled by the insurer (depends on the extent of the flood damage, and it doesn’t take that much water). Once totaled, they get a “salvage title” and are no longer legally salable. Cars that are not totaled get sold as flood-damaged cars at big discounts.

Kasadour

Oct 5, 2016 at 11:16 am

FYI -I’ve sold many cars with salvage titles in Washington and Oregon. You just have to disclose it. however, no bank will give you a loan, so salvage title cars are all cash transactions. I once sold a car, for parts, that *fell* into the Willamette River. Once a car gets that kind of water damage, it can’t be rehabbed and sold. It’s trashed. You just part it out.

Yes, I said this the wrong way. As a big Ford dealership, we never RETAILED vehicles with salvage titles. We wholesaled them. We were worried that no matter what disclosures the customer might sign, it would come to haunt us.

Where we were, we didn’t have flood problems on the lot, but we had hail problems. We had some new cars totaled by hail, which the insurance company made arrangements to have picked up.

The cars that survived the hail storms in more or less decent shape, we sold during our “hail sales,” which were big money-making events.

marty

Oct 6, 2016 at 3:08 am

Aren’t these cars shipped to latin america for rehabbing? Is it called rehabbing in car industry jargon?

Bookdoc

Oct 5, 2016 at 11:22 am

One note-I had a customer who’s car was submerged to the middle of the windows (I saw the picture-during flooding in Georgia I think) and she got a new one. It landed up being a mess as the state she was in does not automatically call flooded cars totaled whereas Ohio does. She landed up with 2 cars for a while until, with our help, she was able to get it declared totaled.

d

Oct 6, 2016 at 12:54 am

And all those Salvage title cars, go to??

Third world nation’s, and south America, as we both know.

HR

Oct 5, 2016 at 7:58 am

There should be an asterisk attached to those figures. And the asterisk should have a footnote that describes the EPA regs that require all the pollution gadgets on new class 8 trucks. And the new pollution gadgets not only don’t work, but they’re very expensive to fix. They break down a lot.

In other words, people are wary of the new trucks and they’re buying older trucks and rebuilding the engines. Businesses are popping up that specialize in refitting older trucks. You just can’t take the older trucks into California which suits me fine. 2013/2014 Peterbilts and Kenworths are selling for half their value. Everybody knows they’ll spend more time in the shop than on the road.

I herd the same story from a few drivers I know. The owners have known about the pollution control stuff, and no one really believes 9mpg anyway on something with more pollution controls…. So they are buying last years stuff once it’s been determined that they will not spend half their time in the shop…..

Copernicus

Oct 5, 2016 at 8:56 am

One of the features of a low interest rate environment is financed capital goods are much cheaper than labour. It is more attractive to renew capital goods, especially when as Dan Romig alludes to, there are fuel (and maintenance) savings too, than increase hiring.
It would be helpful to know what is happening to Truck driver rates.
Does anyone know?

Edward E

Oct 5, 2016 at 9:50 am

Trailers are getting old for many companies as they were purchased before the great recession and now there are many out there over ten years old. I go to a lot of places where the shippers turn away carriers that show up with old trailers and more shippers are personally inspecting the equipment before allowing them to dock. The pumpkin patch has told me that they’re concentrated on acquiring new trailers now versus new tractors.

“In other words, people are wary of the new trucks and they’re buying older trucks and rebuilding the engines. Businesses are popping up that specialize in refitting older trucks.” HR is spot on about that, a number of start ups are producing these gliders and are advertising.

…“I love robots,” said the former Google executive and co-founder of Otto, a startup that began building self-driving trucks from his garage in Palo Alto, Calif., in early 2016. Otto was recently acquired by Uber and he now lead’s Uber’s self-driving efforts for cars and trucks.

The future of transportation and trucking is liquidity and automation, he said. By liquidity he means the ability to match carriers and shippers efficiently to reduce empty loads and emissions. By automation, he means having self-driving trucks everywhere, all the time. …

…After acquiring self-driving truck startup Otto, Uber hopes to make inroads into the nation’s $700-billion-a-year trucking industry. Otto co-founder Lior Ron told Reuters that the six-truck company will expand to 15 trucks, and looks to begin hauling cargo as early as 2017. …

Let’s talk, it’s snowing in Montana and Wyoming now and this winter is forecast to be cold and snowy in the upper Midwest/East with possible Florida orange crop damage. Do you have any estimates for… freight relocation specialists winding up in the ditch? Thus creating demand for new trucks to replace totaled ones? Past winters have shown many are plenty capable of losing control. Snow pile has different meanings for some trucking companies.

That article caught my attention both because it seems silly and it has an HEB trailer in the picture. Less HEB twuck dwivas wouldn’t bother me a bit since one passed me near San Marcos on an off/on ramp lane and nearly took my nose off when he jumped over in front of mine. Maybe HEB even read my online complaint on their website.

Here’s some more info that caught my eye. Trying to predict where autonomous is heading is like climate science models, all over the place.

Wirelessly connected trucks made their European debut in April, when trucks from six major carmakers successfully drove in platoons through Sweden, Germany, Belgium and the Netherlands. Those convoys will be on American roads within a year, says Josh Switkes, chief executive of Silicon Valley-based Peloton, whose software links two semi-trailer trucks. The company has begun taking reservations for its system from freight fleets, and it plans to start delivering them “in volume” within a year.

The new president and CEO of the American Trucking Associations believes autonomous vehicles, including trucks, are closer to rolling onto US highways than widely imagined. “Autonomous vehicle technology is real, folks, and it’s here whether we like it or not,” Chris Spear, who joined ATA in July, said at the ATA Management Conference in Las Vegas Monday.
…The new head of the American Trucking Associations says autonomous vehicles will benefit truck drivers, not replace them. …

Places for truckers to park this winter when everything is full, just look for a closed K-Mart. There are plenty of new ones.

To generate enough cash to keep the business going, a trio of private-label brands — Craftsman tools, Kenmore appliances, and DieHard batteries — as well as Sears’ auto centers and home-services businesses are next on the chopping block.

#GFC2 Global Financial Collapse 2.0 must be thought of as a Geo-Politico-Economic Strategic weapon aimed at Russia & China. So when will it happen? It will happen at the most opportune time in tune with Election timetables in key countries.

So when is that? In the next 12 months we have elections in USA, Netherlands, France & Germany – September 2017. The next major election after that is in Russia – in March 2018. GFC 2.0 is set to begin after the German election.

GFC 2.0 will begin in Sep/Oct/Nov 2017 and deepen through Winter 2018 to undermine Putin in Russia. The pressure is already building and will continue building for 12 months and then sharply intensify in late 2017

Russia & China must be ready for the Geo-Politico-Economic onslaught that will begin in late 2017. If Putin survives the onslaught of GFC 2.0 and remains President. All bets are off and anything is possible 17-11-17

Afterall – All’s fair in love and war 17-11-17

Edward E

Oct 5, 2016 at 11:02 pm

Hear the hounds singing in the geopolitical wilderness, the Zbig elder lead hound was unbelievably singing a mellowed bell mouthed cry of love. Hark, the lead hound has scented his favorite game, the quarry he was born to chase… the bawling of the old leader is unmistakable, that the scent is getting ever hotter. One last shot for the old dog at bringing that old bear to bay.

nick kelly

Oct 5, 2016 at 11:17 pm

An election in Russia? Is that when Putin announces he’s stepping down and turning the reins over to Medvedev?

chris Hauser

Oct 5, 2016 at 12:35 pm

if a new truck doesn’t pay, it doesn’t get bought.

on the other hand, certain trucks i try to rent for business purposes aren’t always available, as the us postal service is sucking them up to deliver packages.

train to short haul to uhaul, me thinks.

Chicken

Oct 5, 2016 at 6:06 pm

I was able to locate an article that said 290,000 trailers were manufactured last year.

Have you seen the number of Union Pacific engines sitting outside of Benson Az? There must be 200-300 of them. I’m wondering if they park those so GE can get Obama funds to keep building them. A crony capitalism deal. Anybody know?

Ptb

Oct 5, 2016 at 7:30 pm

Yes, Benson near I10

michael

Oct 5, 2016 at 2:09 pm

What I would like to know is when we see these translate to lost jobs at the ports. That will be a sure sign.

Freight Rail Traffic Plunges: Haunting Pictures of Transportation Recession
by Wolf Richter • May 4, 2016
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292 Union Pacific engines idled in Arizona Desert

Total US rail traffic in April plunged 11.8% from a year ago, the Association of American Railroads reported today. Carloads of bulk commodities such as coal, oil, grains, and chemicals plummeted 16.1% to 944,339 units.

I think google earth Has long periods between updates. My friends house has a car in the driveway he sold at least a year or two back.

Coaster Noster

Oct 5, 2016 at 8:48 pm

Great article, Wolf, and good commentary across the board. I am speculating, that the “new savings plan” for consumers is “don’t consume”.

In addition, once again computers are taking away jobs. CAD and Finite Element Analysis reveal design problems before they occur, and incorporate experience from prior weak performance, to make a longer lasting, more valuable product in a highly-competitive market. Longer lasting tractors= fewer replacement purchases, and replacements purchased from failed trucking businesses.

Roger

Oct 5, 2016 at 9:22 pm

It would be nice if you provided a class-8 truck order chart back to 2009.

It would assist in not only validating your argument, but also help me determine how deep I should build my bomb shelter.

If you can write off the interest and deprecation against Taxes due, new works. As long as any non deductable lease or finance costs do not eat into your return margin’s V what R&M labour and associated costs are..

The largest costs on a new vehicle being TAX, Interest and depreciation. Particularly the tarmac/concrete initial depreciation.

On used vehicles the largest costs are maintenance and repair labour, and associated costs,(Shop, Tool, Etc).

Waste, Salvage/Scrap, and earth moving have always used a % of used vehicles, as by the end of their life in those industrys. they are effectivly en dof life vehicles, not good for much else but salvage.

I have worked with, researched, and advised operation’s big and small, that run both ways, and operations/ers that have changed from old to new and back more than once. Tax liability was always a huge factor in those changes.

Some of the best long running operations use both new and used this gives them the ability to pluck the cherries from the slightly used and premium Ex lease stock.

As the best used Heavy vehicles are frequently, Ex lease, repo, or tradeins, with full service and damage history’s in writing.

And sales staff, send those vehicles, to buyer’s of new vehicles, that are known to have a policy of buying a fixed number of new vehicles a year and some used ones, to increase their chances, of getting the new unit orders….